Bad management at Malaysia Airlines?

26/03/2014

Malaysian Airlines, the flag carrier whose MH370 Boeing 777-200 disappeared on March 8 without a trace into the Indian Ocean, has been given high marks as a quality airline. Nonetheless it has a troubled corporate history and a series of scrapes going back almost to the launch of its flying operations in 1972.

The publicly traded airline’s most recent annual reports indicate losses skyrocketed by 171 percent to RM1.17 billion ($359.12 million). That follows years of lackluster performance, management changes and exploitation by cronies connected to the country’s ruling Barisan Nasional, or national coalition, particularly the United Malays National Organization. It has been the subject of repeated “turnaround plans” that turned out to be cul-de-sacs. The 2013 losses followed 2011 losses of RM2.52 billion, the largest in the airline’s history. The losses were laid to rising fuel costs and mismanagement, forcing it to cut back eight international routes.

That isn’t to say the airline’s management woes had anything to do with the disappearance of the airliner, with 239 passengers and crew aboard on the way to Beijing. They didn’t. But mismanagement and other sloppy practices have belied MAS’s record of excellent service and its flight safety record, which is on a par with other regional carriers. When it has needed to import foreign expertise – pilots – it has done so.

Nonetheless, MAS has been required to do national service, flying into low-passenger-volume areas to keep local politicians happy and has seen low-cost airlines like AirAsia, controlled by private entrepreneur Tony Fernandes, eat its lunch on both high-profit domestic and international routes. An attempt to sell the airline to Fernandes last year foundered because of union opposition and a political furor.

Cronies have repeatedly very nearly ruined the business operations, requiring a long series of government bailouts. It is now controlled by Penerbangan Malaysia Bhd., a government holding company. Kazanah Nasional, another government sovereign fund, holds a minority share. Sources have told the Asia Sentinel that contracts for everything from the packets of nuts for passengers to cleaning contracts are vastly inflated and given to UMNO cronies. The catering contract, for instance, was awarded to the brother of former Prime Minister Abdullah Ahmad Badawi and LSG Lufthansa for 25 years. It still has more than a decade to run.

In 1994, according to affidavits filed by one-time CEO Tajudin Ramli after a falling out with Prime Minister Mahathir Mohamad, Tajudin bought a controlling 32 percent of MAS shares at an inflated price of RM8.00 at Mahathir’s behest – while the shares were trading at RM3.30 – using disguised funds from government-linked companies to shift the excess to cover massive speculation losses in foreign exchange by Bank Negara, the country’s central bank.